Leave Encashment

                    All of us are very familiar with the term Leave Encashment. We usually heard this word when someone is retired either voluntarily, prematurely or on superannuation. Also, we heard about this word when any employee goes on Leave Travel Concession. In this post, we will discuss Leave Encashment in case of retirement.
Leave Encashment
Leave Encashment

Civil Service Rule for Leave Encashment

           Leave Encashment is admissible to every Government employee as per rule 8.21 of Punjab Civil Service Rules volume 1 part 1. As per this rule, Leave at the credit of a Government employee in his leave account shall lapse on the date of his retirement. 
           But the employee shall be entitled to a cash payment in lieu of un-utilized earned leave at his credit. An employee can only take leave encashment up to a maximum of 300 days from his un-utilized earned leave at his credit at the time of retirement.

Payment of Leave Encashment at different time intervals

  • An employee can only take payment of leave encashment up to a maximum of 180 days from his un-utilized earned leave at his credit up to 23-11-1988.
  • From 24-11-1988 this limit increased from 180 to 240 days.
  • From 01-01-1996 this limit has been further increased to 300 days and this limit is prevailing currently also.

Can Leave Encashment withhold?

           As per rule 8.21(aa), the authority competent to grant leave may withhold whole or part of the cash equivalent of earned leave in the case of Government employee, who retires from service on superannuation while under suspension or while disciplinary or criminal proceedings are pending against him, if in the opinion of such authority, there is a possibility of some money becoming recoverable from him on the conclusion of the proceedings against him and on the conclusion of the proceedings, he shall become eligible to the amount so withheld after adjustment of Government dues, if any.

Formula to calculate Leave Encashment

           According to rule 8.21(c) of Punjab Civil Service Rules volume 1 part 1, the Leave Encashment shall be calculated as follows:-

Formula to Calculate Leave Encashment
Formula to Calculate Leave Encashment

           In the above formula, pay means Basic Pay which includes Pay Band, Grade Pay, Interim Relief and other pay which forms a part of Basic pay.

Can Leave Encashment be paid to an employee in Installments?

           Leave Encashment paid to an employee in a lump sum and as a one-time settlement means it cannot be paid into installments as per rule 8.21(a)(ii).

Payment of Leave Encashment in the case of Death of Govt. Employee

           As per rule 8.122(8), If a Government employee including a military pensioner re-employed in civil service, dies while in service, the cash equivalent of the leave salary (carrying the appropriate amount of dearness allowance) in respect of earned leave at his credit subject to a maximum of 300 days in entire service, shall be paid to his family.

Is Leave Encashment taxable?

As per Income Tax Act,1961 Section 10(10AA), Leave Encashment received at the time of superannuation or resignation exemption is available upto the following limits:-
  • In the case of State Government employees and Central Government employees(Excluding employees of board/corporations, local authority or statutory body)-Fully Exempt; and
  • In the case of Non-Government employees like employees of Board, Corporations payment of Leave Encashment up to Rupees 3,00,000/- is non-taxable and the amount above this amount is fully taxable as per Income-tax Act; and
  • Leave Encashment paid to the legal heirs of an employee who dies while in service is non-taxable.

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1 Comments

  1. hello sir is earned leave encashment is allowed in case of resignation?

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